Demutualization and the Remapping of Financial Landscapes

Abstract

Over the past two decades, financial landscapes everywhere have undergone intense change. Together, deregulation, technological innovation and globalization have transformed financial markets, institutions and products, creating new geographies of money in the process. This paper examines one particular aspect of this remapping, namely the demutualization of building societies in the United Kingdom. Born out of the friendly society movement of the nineteenth century, building societies have traditionally been quintessentially local, non‐profit organizations taking interest‐bearing deposits from, and providing long‐term mortgage loans to, their local members. Their mutual status derived from this ‘ownership by members’. As the British Conservative governments of the 1980s pushed through their programme of financial deregulation, so the opportunities were created for the building societies to ‘demutualize’, that is to abandon their traditional ‘member‐owner’ status, to float themselves on the Stock Market, and to convert to banks. Since 1989, five of the largest building societies (with assets rivalling those of the major banks) have demutualized. Our aim in this paper is to examine this demutualization process, its impacts and its tensions. In many ways it is an inherently geographical phenomenon, not only by virtue of the different membership geographies of the societies that have floated, but also because of its implications for the localized nature of the building society movement as a whole. Adopting an institutionalist perspective, we trace the regulatory and financial developments that created the opportunities for demutualization. We then move on to show how demutualization has shifted the ownership of the societies away from localized memberships to institutions based in London. By allocating free shares to their members, demutualization created a potentially important mechanism for spreading share‐ownership across the population and regions, but the evidence suggests that this impact has been more limited than perhaps expected, and that significant numbers of shares have been transferred into London‐based financial institutions. The paper concludes by tracing the potentially destabilizing impact of demutualization on the remainder of the local building society movement.

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